China - Market Strategy 04 (Aug 18 - Jan 23)

[winston]

Hope blooms for China stocks as analysts stop cutting estimates

Analysts have stopped cutting forward estimates for MSCI China members, after slashing them by 10 per cent since early March.

Goldman Sachs Group and China International Capital Corp, expect profits to rise for the benchmark in the second half of this year.

And a string of better-than-feared results by internet giants including Alibaba Group Holding and Baidu -- which led to double-digit gains in their shares -- suggests some investors had become too pessimistic on the outlook for earnings.

In recent weeks, Amundi, AllianceBernstein, UBS Global Wealth Management and Citigroup have become more optimistic on Chinese shares.

Source: Bloomberg

https://www.businesstimes.com.sg/stocks ... -estimates

[winston]

China Strategy – a modest and bumpy consumption recovery

While the latest economic data highlights modest recovery in activities & retail sales, the 618 shopping festival result suggests overall consumption sentiment was still cautious.

We believe the “dynamic zero Covid-19” policy & soft employment marke,t are likely to weigh on consumer spending. Together with a sluggish property market, which would lead to weak asset value, this is likely to drag disposable income growth.

Despite these near-term challenges, there could be an inflection point in 2H 2022 & in early 2023 with a more favourable YoY comparison, further pick-up in economic activity and improvement in the labour market.

In addition, consumer demand remains strong for high quality products & premiumisation trend continues despite macro uncertainty. As such, market leaders have been demonstrating more resilience & continuing to invest for market share gains in the current challenging environment.

In our view, April 2022 should have seen the worst in terms of consumer spending & retail sales. We expect 2H 2022 consumption recovery trend will be modest and bumpy.

We are positive on consumption upgrade as a long-term structural trend. We view consumption as a proxy to position China's late cycle recovery with upside from targeted supportive policies, such as, household subsidy, consumption vouchers, & tax cut or subsidies. Overall, we prefer companies with the ability to gain market share, command pricing power, & have flexible cost structures.

For consumer staples, we are positive on the dairy sub-sector. Its demand has been more resilient & raw material costs are relatively more stable than other consumer sub-sectors.

In consumer discretionary, autos is set to benefit from supportive government policy. Following a quick rebound in share price of autos over the past month, we believe tactical investors could consider taking partial profits and fresh positions will need to be increasingly tactical in their positioning given potential for profit taking pressures.

We are selective in sportswear as we expect sales data will remain volatile in the near-term & therefore expect share price volatility in the upcoming interim reporting season.

We expect eCommerce platforms to benefit from normalisation of regulatory environment in favor of healthy compliant platforms with sustainable growth.

We are more tentative on beer (owing to Covid-19 lockdown uncertainties & margin pressure) &, leisure and travel related plays (as the “dynamic zero Covid-19” policy will stay till the 20th Party Congress in 4Q 2022).

Source: OCBC

[winston]

JPM: CN Equity Mkt More Attractive than Other Regions in 2H22; 5 Key Themes, Relevant Stocks Recommended

JPMorgan published a 2H22 outlook report on China’s equity market, believing that the case for Chinese equities will become more compelling in 2H22, compared to Asia’s emerging markets and the world as a whole.

The broker set the base case target for MSCI China Index for end-2022 at 116 (implying a potential upside of 63% from the level at market close on 17 June), to reflect the relatively stable macro economy of China, normalizing regulation and anticipated improvements in China-U.S. relationship.

JPMorgan recommended five key investment themes for 2H22, namely “Countryside Prosperity”, “China Internet Comeback”, “China Green Infrastructure”, “China Consumption” and “China Tariff Reduction”.

For the “Countryside Prosperity” basket, the broker’s stock recommendations are as follows: Pinduoduo (PDD.US), BYD COMPANY (01211.HK), PSBC (01658.HK), GREATWALL MOTOR (02333.HK), GEELY AUTO (00175.HK), ANTA SPORT (02020.HK), CHINA RES BEER (00291.HK) , TSINGTAO BREW (00168.HK) and HAIER SMARTHOME (06690.HK).

The broker’s picks for the “China Internet Comeback” basket: JD.com (JD.US) , MEITUAN-W (03690.HK), Pinduoduo (PDD.US), BYD COMPANY (01211.HK), Baidu, Inc. (BIDU.US), Alibaba Group Holding Limited (BABA.US), TENCENT (00700.HK), NetEase, Inc. (NTES.US) , KUAISHOU-W (01024.HK), NIO Inc. (NIO.US), Bilibili Inc. (BILI.US), iQIYI, Inc. (IQ.US}, TAL Education Group (TAL.US) and New Oriental Education & Technology Group, Inc. (EDU.US).

The broker’s picks for the “China Green Infrastructure” basket: BYD COMPANY (01211.HK), CHINA LONGYUAN (00916.HK) 0.000 (0.000%), CHINA SHENHUA (01088.HK), NIO Inc. (NIO.US), XPeng Inc. (XPEV.US) CH RES GAS-100 (01193.HK), CHINA RES POWER (00836.HK) and CHINA COAL (01898.HK).

The broker’s picks for the “China Consumption” basket: BYD COMPANY (01211.HK) , NIO Inc. (NIO.US), XPeng Inc. (XPEV.US), MENGNIU DAIRY (02319.HK), ANTA SPORTS (02020.HK), CHINA RES MIXC (01209.HK), LI NING (02331.HK), HAIER SMARTHOME (06690.HK), SHENZHOU INTL (02313.HK), XTEP INT'L (01368.HK), New Oriental Education & Technology Group, Inc. (EDU.US), Huazhu Group Limited (HTHT.US) and Luckin Coffee (LKNCY.US).

The broker’s picks for the “China Tariff Reduction” basket: COSCO SHIP HOLD (01919.HK), OOIL (00316.HK), XINYI SOLAR (00968.HK), FLAT GLASS (06865.HK) and MINTH GROUP (00425.HK) .

Source: AAStocks Financial News

[winston]

Chinese stocks’ US$1.8 trillion recovery from April low faces another earnings test as UBS, Citic predict setbacks

The 800 biggest companies on the Shanghai and Shenzhen exchanges could suffer a 23 per cent drop in second-quarter profit, according to Citic Securities

Expect market to consolidate in the next two months on mild economic recovery and earnings downgrades, UBS strategist says

by Zhang Shidong

Source: SCMP

https://www.scmp.com/business/china-bus ... -low-faces

[winston]

China/HK Market Strategy: Modest inflation data for China pave way for further stimulus measures

Inflation is the biggest challenge for global economy, but not for China

China’s moderating inflation data provides room for stimulus measures and growth

Expect the risk appetite to improve in 2H with further potential stimulus measures

Favour sectors that benefit from policy support, overhang removal, and rising interest rates

Source: DBS

[behappyalways]

全球股災陸股卻翻紅 陳鳳馨：政策反轉點是指標！【#風向龍鳳配 】
https://m.youtube.com/watch?v=5RCzvAZOrp8

[winston]

China Strategy
Policy banks provide equity financing for investment in key projects

The State Council released an Rmb300bn bond issuance quota to policy banks for
funding key projects.

The three key areas covered are:
a) basic facilities;
b) major technological innovations;
and c) other local government special investment projects.

Infrastructure investment will remain the driver of economic growth (and recovery from the COVID-19 outbreak) in 2022. Other funding channels, such as special government bonds, are likely to be announced.

FAI-related names in the conventional and new infrastructure-related segments are
expected to report decent growth in FY22.

The analysis in this report is based on industry and macro figures and may differ from
the views of individual analysts, in some cases.

Source: CIMB

https://rfs.cgs-cimb.com/api/download?f ... CC6BC0DFB3

[winston]

China equities checklist: 8 reasons to stay invested

1. Equities set to potentially benefit from pro-growth policies and a more stable backdrop
2. Long-term trend of foreign investors buying China equities intact
3. China’s potential is not captured in world equity indices
4. Chinese stocks don’t move in lockstep with other equity markets
5. China equities exhibit higher volatility – and potentially higher returns over the longer-term
6. Attractive valuations
7. Innovation and transformation: key drivers of China’s growth
8. China’s equity market offers multiple options for investment

Source: Allianz

https://sg.allianzgi.com/-/media/allian ... 751BB3D325

[winston]

China is pariah for global investors as Xi's policies backfire

Reasons to avoid the country outweigh incentives to buy. They cite everything from unpredictable regulatory campaigns to economic damage caused by strict Covid-19 policies, not to mention growing risks stemming from a wobbly real-estate market and even Xi's cosiness with Russia's Vladimir Putin.

"It's just easier to put China aside for now when you see no end in sight from Covid Zero and the return of geopolitical risk."

Rather than debate when to buy the dip in Chinese assets, discussions among global investors now focus more on how much to reduce exposure.

Some European pension funds and charities no longer want China in their portfolios because of rising geopolitical and governance risk

Source: Bloomberg

https://www.businesstimes.com.sg/govern ... s-backfire

[winston]

China Strategy – Constructive on 2H22 outlook despite uneven path to recovery

China’s growth supportive measures & policies continue to roll out, it should support a gradual recovery in 2H22 although the recovery path would be uneven.

In this note, we look into possible supportive measures in infrastructure and autos & NEVs.

In addition, market has been expecting an update on potential rollback of some tariffs on Chinese imports that was imposed during the Trump administration. Any adjustments on tariffs would support a rebound of China’s export growth and the share in imports from China but we believe the impact would be relatively immaterial at the market level.

We assess the potential impact of mortgage repayment suspension on pre-sold property projects that are experiencing construction suspension & completion delays.

We view the potential risk to the banking system as manageable & there could be more spillover impact on the property sector & weakens the wealth effect.

Having said that, we view the situation remains fluid & would warrant close monitoring on the expansion of list of delayed projects & policy actions. Hence, we are cautious on real estate sector & expect banks to underperform.

Going into 2H22, our constructive stance on Chinese equities remains intact - the easing policy bias, the current account surplus, the gradual recovery & re-opening, and undemanding valuation, would support relative outperformance of Chinese equities.

Despite our constructive stance, we view the recovery path will remain bumpy. We expect HK and Chinese equities market to post rebounds but are likely to remain in a trading range at the index levels until:-
i) there is more concrete government actions in addressing the mortgage payment suspension on delayed projects & the spillover effect
ii) the momentum of downward earnings revisions moderates
iii) more concrete development regarding US-China audit disputes, &
iv) more clarity on the Federal Reserve rate hike trajectory from September onwards.

We continue to prefer policy beneficiaries and re-opening plays, infrastructure and construction related industries (including renewables) and autos & NEV supply chain.

We remain selective on the consumer sector as we expect 2H22 consumption recovery trend will be modest & bumpy.

We continue to advocate having exposure to quality value plays with strong cash flow & high dividend yield to mitigate market volatility & we prefer the telecom sector which offer relatively attractive dividend yield.

Source: OCBC